Inflation is squeezing American pocketbooks from all directions. Wages aren’t keeping up with increases at the gas pump, the supermarket, and everyday living expenses, yet people still need to protect what they have, including their homes, transportation, health, and life. Here are some ways inflation is impacting the insurance industry and how to adapt in 2023 and beyond.
How Inflation is Affecting The Insurance Industry
Inflation is a topic of concern across all industries. When prices rise, people find creative ways to economize. In the insurance industry, policyholders may choose greater risk or forfeiting privacy over higher financial outlay. Here are some notable changes within the insurance industry.
Property/Casualty Premiums Rising
While premiums are rising across the board, property/casualty premiums are expected to take a greater hit. According to an article published in the Insurance Journal, property/casualty premiums are predicted to rise by around 6% over the remainder of 2023.
Cyber Policy Rates Continuing to Go Up
Cyber policy rates doubled in 2021, and industry insiders expect they will continue to rise. When finances are tight, cyber crimes skyrocket, creating a greater need for coverage. However, increasing rates will lead many to shop around to get the best rates or added perks.
Consumers Seeking Out Telematics
As insurance premium costs rise, policyholders are spending more time shopping around and seeking ways to lower their monthly expenses. A study from JD Power found that 3.6% of consumers surveyed switched insurance companies from Q1 to Q2 of 2022.
One attractive way consumers have found to reduce costs is through telematics. Whether it’s Bluetooth monitoring of driver risks or wearable devices for health habits, telematics data can be a win-win for policyholders and insurers.
Telematics can help assess real risk to the insurer rather than relying on the traditional (less reliable) markers of gender, age, education, or credit score. If your agency isn’t keeping up with telematics, it may be something to consider.
Consumers Searching for Flexibility
As consumers are shopping around for the best return on investment for their insurance dollars, they are also looking for flexibility. For example, they may be looking for the ability to switch their coverage on and off, depending on needs or cash flow. They may be looking for the option of paying only for what they use based on telematics, or they may desire relaxed payment or cancellation terms.
Because of the uncertainty of the economy, consumers are more at ease when their financial commitments can flex with their situations, including layoffs and health expenses.
Take Time to Do a Self Evaluation
How is your agency doing now, three years into the pandemic? Take time to do a SWAT (Strengths, Weaknesses, Opportunities, and Threats) analysis. What’s going well? What areas of business do you see as your weaknesses?
What are some opportunities for expanding your reach? Maybe it’s time to consider some new coverages, such as Directors and Officers (D&O) insurance, Errors & Omissions (E&O) insurance, business interruption insurance, and others.
We know inflation is one threat we’re all subject to, but what others can your agency foresee arising over the next few years? Threats are often opportunities in disguise.
The Solution? ADAPT to Inflation
McKinsey & Company shared a business method called ADAPT to make necessary changes in an inflated economy. ADAPT is an acronym for Adjust, Develop, Accelerate, Plan, and Track. As inflation threatens to disrupt business as usual, following this model can help keep your insurance business on track and moving forward.
Adjust
Adjust refers to adjusting prices regularly to stay on point with current inflation-related increases. That could mean adjusting discounts, promotions, and add-on fees, like policy fees. If you don’t find ways to adjust prices along the way, you’ll be required to make massive increases, leading policyholders to look elsewhere. Adjusting means being creative in maintaining profit margins. It may also mean raising the bar. It may be necessary to have more stringent underwriting requirements for potential applicants.
Develop
Develop a pricing strategy that gradually increases rates with thoughtful consideration. The percentage and method of increase may differ based on the type of client and the product features. This could mean charging additional fees for value-added services like HR consulting and administrative services. It could mean making greater use of telematics.
“Develop” may also refer to developing new markets by cross-selling existing clients on additional products or adding new products. It can go beyond current policyholders and refer to reaching out to previous clients or prospects, developing your presence in the community through networking, and developing your current connections by asking for referrals.
Accelerate
Accelerate decision-making and marketing efforts to keep up with the times. That may mean arranging a council of decision-makers who can compile current data and trends and then make knowledge-based changes to pricing and processes throughout the agency.
It can also help to have a specific team that decides on the best way to communicate those changes to clients in the best way to retain them going forward.
Plan
Plan for unexpected expenses and find other ways to reduce costs. That goes back to our recent article, Reducing Operating Costs in The Insurance Industry. Intentionally budgeting for unexpected expenses while finding ways to reduce unnecessary perks can also help set you up to weather the coming storm.
Additionally, create an action plan to put some of these strategies into motion. Appoint a team member responsible for each task and agree upon a timeline for completing that task. Then follow up at the next meeting for accountability and to track progress.
Track
Track your efforts and results closely. This means reviewing your monthly profit and loss statements, using market analysis tools to compare your company to competitors, and staying on top of industry trends. Surveying policyholders can also help to gauge their satisfaction levels and get feedback on your current offerings and pricing. Meet with your team regularly to review results and brainstorm ways to improve.
Final Thoughts
In this current economic climate, adaptability is everything. Because technology and other changes are happening at an unprecedented rate, keeping up with trends, tracking results, and monitoring where you sit compared to the competition are all essential to not only weather the storm but to ride the waves.